Question 1

Figure 12-2 r. A nonintervention policy Would return the economy to its potential output by A)  allowing the short-run aggregate supply to shift to the right. B)  allowing the short-run aggregate supply to shift to the left. C)  allowing the aggregate demand to shift to the left. D)  allowing the aggregate demand to shift to the right. " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 12-2. Assume that the economy is initially at Yr. A nonintervention policy
Would return the economy to its potential output by

Accepted Answer

A)   allowing the short-run aggregate supply to shift to the right.
B)   allowing the short-run aggregate supply to shift to the left.
C)   allowing the aggregate demand to shift to the left.
D)   allowing the aggregate demand to shift to the right.

Question 2

In the United States, government purchases, as a percentage of real GDP, have generally declined since the 2001.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is an automatic stabilizer?
I. inheritance taxes
II. government payments to war veterans
III. aid to families with dependent children
IV. sales taxes

Accepted Answer

A)   I, II, III, and IV
B)   I, II, and III only
C)   II and III only
D)   III only

Question 4

Figure 12-3 1, which of the following is the most Appropriate discretionary fiscal policy to pursue? A)  a contractionary fiscal policy involving reductions in government spending and increases in income tax rates B)  a contractionary fiscal policy involving reductions in government spending and decreases in income tax rates C)  an expansionary fiscal policy involving increases in government spending and increases in investment tax credits D)  an expansionary fiscal policy involving increases in government spending and decreases in investment tax credits " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 12-3. If the aggregate demand curve is AD1, which of the following is the most
Appropriate discretionary fiscal policy to pursue?

Accepted Answer

A)   a contractionary fiscal policy involving reductions in government spending and increases in income tax rates
B)   a contractionary fiscal policy involving reductions in government spending and decreases in income tax rates
C)   an expansionary fiscal policy involving increases in government spending and increases in investment tax credits
D)   an expansionary fiscal policy involving increases in government spending and decreases in investment tax credits

Question 5

Figure 12-1 1 and there is A)  an inflationary gap. B)  a recessionary gap. C)  equilibrium at full employment. D)  a short-run and a long-run equilibrium. " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 12-1. The economy is initially at output level Y1 and there is

Accepted Answer

A)   an inflationary gap.
B)   a recessionary gap.
C)   equilibrium at full employment.
D)   a short-run and a long-run equilibrium.

Question 6

Fiscal policy has a short implementation lag compared to monetary policy.

Accepted Answer

A) True 
 B)False

Question 7

Crowding out occurs when expansionary fiscal policy leads to

Accepted Answer

A)   a higher money supply and a reduction in net exports.
B)   a higher money supply and a reduction in the interest rate.
C)   a higher interest rate and a reduction in private investment.
D)   a higher price level and a reduction in the money supply. C

Question 8

Which of the following statements is true?

Accepted Answer

A)   Unlike monetary policy, fiscal policy is not subject to lags.
B)   Like monetary policy, fiscal policy is also subject to the same types of lags.
C)   In general, fiscal policy lags are much shorter than monetary policy lags.
D)   Although both monetary and fiscal policies are subject to lags, fiscal policy lags are easier to eliminate.

Question 9

Automatic stabilizers

Accepted Answer

A)   increase the problems that lags cause in using fiscal policy as a stabilization tool.
B)   are changes in taxes or government spending that increase aggregate demand without requiring policymakers to act when the economy goes into recession.
C)   are changes in taxes or government spending that policymakers agree to when the economy goes into recession.
D)   are part of discretionary fiscal policy.

Question 10

An expansionary fiscal policy will result in higher interest rates and will reduce private investment.

Accepted Answer

A) True 
 B)False

Question 11

Suppose an economy has an inflationary gap.
a. Illustrate this using a graph with LRAS, SRAS, and AD curves. Identify the equilibrium price level, real GDP, and the output gap in your diagram. Be sure to label your diagram fully.
b. Identify two fiscal policy tools which may be used to eliminate the gap.
c. Explain in words how these tools will affect the aggregate demand, long-run aggregate supply, and short-run aggregate supply curves.
d. Incorporate into your graph, the relevant shifts in the curves that would take place when expansionary fiscal policy is used to eliminate the recessionary gap.

Accepted Answer

a. In an economy with an inflationary ga...

Question 12

Figure 12-3 2, which of the following is the most appropriate discretionary fiscal policy to pursue? A)  a contractionary fiscal policy involving reductions in government spending and decreases in income tax rates B)  a contractionary fiscal policy involving reductions in government spending and increases in income tax rates C)  an expansionary fiscal policy involving increases in government spending and increases in income tax rates D)  an expansionary fiscal policy involving increases in government spending and decreases in income tax rates " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 12-3. If the aggregate demand curve is AD2, which of the following is the most appropriate discretionary fiscal policy to pursue?

Accepted Answer

A)   a contractionary fiscal policy involving reductions in government spending and decreases in income tax rates
B)   a contractionary fiscal policy involving reductions in government spending and increases in income tax rates
C)   an expansionary fiscal policy involving increases in government spending and increases in income tax rates
D)   an expansionary fiscal policy involving increases in government spending and decreases in income tax rates

Question 13

A reduction in tax rates may result in a short-term reduction in government revenues, but it
will also leave people with more disposable income.

Accepted Answer

A) True 
 B)False

Question 14

The national debt is the difference between current government expenditures and taxes.

Accepted Answer

A) True 
 B)False

Question 15

One method of assessing the degree to which current fiscal policies affect future generations is through a device called

Accepted Answer

A)   inter-temporal fiscal accounting.
B)   generational accounting.
C)   long-term debt assessment technique.
D)   fiscal stabilization tool.

Question 16

Consider two fiscal policy actions.
I. a $400 billion reduction in income taxes
II. a $400 billion increase in government purchases
Which policy will have a bigger impact on aggregate demand?

Accepted Answer

A)   Both policies will have the exact same impact.
B)   Policy II because it affects aggregate demand directly.
C)   Policy I because it affects disposable income directly.
D)   Policy I because it works through consumption which is the largest component of aggregate demand. B

Question 17

What is an automatic stabilizer?

Accepted Answer

A)   It refers to a discretionary policy that is triggered when actual output is not equal to potential output to improve the economy's performance.
B)   It refers to a stabilization program that keeps inflation in check automatically.
C)   It refers to any government program that tends to reduce fluctuations in GDP automatically.
D)   It refers to a government program that is automatically triggered when the economy enters a recession.

Question 18

Which of the following statements is true regarding the government budget?

Accepted Answer

A)   The government's budget has been in deficit since the 1960s.
B)   The government's budget has been in deficit since World War II except for a brief period between 1998 and 2001.
C)   The government's budget was generally in surplus until the 1980s, then mostly in deficit since except for a brief period between 1998 and 2001.
D)   The government's budget was generally in surplus in the 1960s, then mostly in deficit since except for a brief period between 1998 and 2001.

Question 19

As discussed in the Case in Point on the size of the fiscal multiplier, a study conducted by John Taylor on the effect of fiscal policy since the year 2000 suggests that

Accepted Answer

A)   the multiplier effect of fiscal policy is much less than that for monetary policy.
B)   temporary fiscal policy financed through government borrowing implies a multiplier value between 0.8 and 1.5.
C)   fiscal policy has little effect on the economy and that the multiplier value is effectively zero.
D)   statistical models are inadequate to determine the multiplier and the multiplier value likely varies based on the state of the economy.

Question 20

State and local tax receipts are dominated by

Accepted Answer

A)   property taxes and state income taxes.
B)   state income taxes and sales taxes.
C)   property taxes and sales taxes.
D)   sales taxes and business taxes. C

Exam 27: Money and Banking

Figure 12-2 -Refer to Figure 12-2. Assume that the economy is initially at Y_r. A nonintervention policy Would return the economy to its potential output by

Correct Answer
verified

In the United States, government purchases, as a percentage of real GDP, have generally declined since the 2001.

Correct Answer
verified

Which of the following is an automatic stabilizer? I. inheritance taxes II. government payments to war veterans III. aid to families with dependent children IV. sales taxes

Correct Answer
verified

Figure 12-3 -Refer to Figure 12-3. If the aggregate demand curve is AD₁, which of the following is the most Appropriate discretionary fiscal policy to pursue?

Correct Answer
verified

Figure 12-1 -Refer to Figure 12-1. The economy is initially at output level Y₁ and there is

Correct Answer
verified

Fiscal policy has a short implementation lag compared to monetary policy.

Correct Answer
verified

Crowding out occurs when expansionary fiscal policy leads to

Correct Answer
verified
C

Which of the following statements is true?

Correct Answer
verified

Automatic stabilizers

Correct Answer
verified

An expansionary fiscal policy will result in higher interest rates and will reduce private investment.

Correct Answer
verified

Correct Answer
Answered by ExamLex AI
a. In an economy with an inflationary ga...
View Answer

Figure 12-3 -Refer to Figure 12-3. If the aggregate demand curve is AD₂, which of the following is the most appropriate discretionary fiscal policy to pursue?

Correct Answer
verified

A reduction in tax rates may result in a short-term reduction in government revenues, but it will also leave people with more disposable income.

Correct Answer
verified

The national debt is the difference between current government expenditures and taxes.

Correct Answer
verified

One method of assessing the degree to which current fiscal policies affect future generations is through a device called

Correct Answer
verified

Consider two fiscal policy actions. I. a $400 billion reduction in income taxes II. a $400 billion increase in government purchases Which policy will have a bigger impact on aggregate demand?

Correct Answer
verified
B

What is an automatic stabilizer?

Correct Answer
verified

Which of the following statements is true regarding the government budget?

Correct Answer
verified

As discussed in the Case in Point on the size of the fiscal multiplier, a study conducted by John Taylor on the effect of fiscal policy since the year 2000 suggests that

Correct Answer
verified

State and local tax receipts are dominated by

Correct Answer
verified
C

Exam 27: Money and Banking

Figure 12-2 -Refer to Figure 12-2. Assume that the economy is initially at Yr. A nonintervention policy Would return the economy to its potential output by

Correct AnswerverifiedShow Answer

In the United States, government purchases, as a percentage of real GDP, have generally declined since the 2001.

Correct AnswerverifiedShow Answer

Which of the following is an automatic stabilizer? I. inheritance taxes II. government payments to war veterans III. aid to families with dependent children IV. sales taxes

Correct AnswerverifiedShow Answer

Figure 12-3 -Refer to Figure 12-3. If the aggregate demand curve is AD1, which of the following is the most Appropriate discretionary fiscal policy to pursue?

Correct AnswerverifiedShow Answer

Figure 12-1 -Refer to Figure 12-1. The economy is initially at output level Y1 and there is

Correct AnswerverifiedShow Answer

Fiscal policy has a short implementation lag compared to monetary policy.

Correct AnswerverifiedShow Answer

Crowding out occurs when expansionary fiscal policy leads to

Correct AnswerverifiedC

Which of the following statements is true?

Correct AnswerverifiedShow Answer

Automatic stabilizers

Correct AnswerverifiedShow Answer

An expansionary fiscal policy will result in higher interest rates and will reduce private investment.

Correct AnswerverifiedShow Answer

Correct AnswerAnswered by ExamLex AIa. In an economy with an inflationary ga...View AnswerShow Answer

Figure 12-3 -Refer to Figure 12-3. If the aggregate demand curve is AD2, which of the following is the most appropriate discretionary fiscal policy to pursue?

Correct AnswerverifiedShow Answer

A reduction in tax rates may result in a short-term reduction in government revenues, but it will also leave people with more disposable income.

Correct AnswerverifiedShow Answer

The national debt is the difference between current government expenditures and taxes.

Correct AnswerverifiedShow Answer

One method of assessing the degree to which current fiscal policies affect future generations is through a device called

Correct AnswerverifiedShow Answer

Consider two fiscal policy actions. I. a $400 billion reduction in income taxes II. a $400 billion increase in government purchases Which policy will have a bigger impact on aggregate demand?

Correct AnswerverifiedB

What is an automatic stabilizer?

Correct AnswerverifiedShow Answer

Which of the following statements is true regarding the government budget?

Correct AnswerverifiedShow Answer

As discussed in the Case in Point on the size of the fiscal multiplier, a study conducted by John Taylor on the effect of fiscal policy since the year 2000 suggests that

Correct AnswerverifiedShow Answer

State and local tax receipts are dominated by

Correct AnswerverifiedC

Figure 12-2 -Refer to Figure 12-2. Assume that the economy is initially at Y_r. A nonintervention policy Would return the economy to its potential output by

Correct Answer
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Figure 12-3 -Refer to Figure 12-3. If the aggregate demand curve is AD₁, which of the following is the most Appropriate discretionary fiscal policy to pursue?

Correct Answer
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Figure 12-1 -Refer to Figure 12-1. The economy is initially at output level Y₁ and there is

Correct Answer
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Correct Answer
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C

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Correct Answer
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Correct Answer
Answered by ExamLex AI
a. In an economy with an inflationary ga...
View Answer

Figure 12-3 -Refer to Figure 12-3. If the aggregate demand curve is AD₂, which of the following is the most appropriate discretionary fiscal policy to pursue?

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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B

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C